Money Can't Be Taken out of a Country
We sometimes hear that investors took a billion dollars out of India. In a sense, it’s true: they have a billion more to invest elsewhere. And they can no longer use that money to buy products or services in India. And they’re less exposed to what happens in India. Just as if you sell your land in Mysore, you no longer need to worry about the real estate market in Mysore. So, in that sense, the investor indeed took their money out of India.
But, in a different sense, rupees can’t be taken out of India. Before the investor took the billion dollars out of India, they were holding the equivalent rupees in an Indian bank. When they exit, the rupees are transferred to someone else’s Indian account, and they remain in India. The rupees are not leaving India! At the same time, the counterparty transfers USD from their US account to the investor’s US bank account1. These are two separate transactions: INR flows from Indian bank account → Indian bank account, and USD flows from US bank account → US bank account. There’s no such thing as an international money transfer. There are just two domestic transfers happening at the same time.
An analogy is that the rupees are like a primary key into a database (India). They can’t really be exported out of the database.
Another analogy is an investor that owns 100 houses in India. If they decide to sell 30 and buy 30 in the US, the headlines may say that the investor moved 30 houses to the US. But the houses weren’t physically uprooted and loaded onto a ship for transport. Instead, the 30 houses in India were sold to other buyers and, separately, 30 houses were purchased in the US. The houses sold were completely different from the ones purchased, so they weren’t really moved.
As an aside, the reason that the rupee falls when a lot of money is taken out of India is not because there are fewer rupees — it’s not like that there are 10 balls in a basket and you’ve taken 3 out so you’re left with 7. Rather, the rupee falls because there’s less demand for it.
In fact, part of the reason one dollar buys so many rupees and not the other way around is that there’s a lot of demand for a dollar — there are more products and services you can buy with it2.
Or euros in the EU, or yen in Japan, etc.
The other reason being how many rupees or dollars have been printed relative to GDP.